Karachi, September 19, 2024 – The Federal Board of Revenue (FBR) has provided a comprehensive clarification regarding the disposal and acquisition of assets under Pakistan’s Income Tax laws. The updated provisions, outlined in Section 75 of the Income Tax Ordinance, 2001 (as of June 30, 2024), aim to ensure transparency and proper tax compliance concerning asset transactions in the country.
Under Section 75 of the Ordinance, the FBR defines how the disposal and acquisition of assets will be treated for tax purposes, providing clarity for individuals and businesses alike. These regulations cover a range of scenarios where ownership of assets changes hands, whether through sale, transfer, or other means.
Key Provisions on Disposal of Assets:
1. Ownership Transfer: A person is considered to have disposed of an asset when they part with ownership. This can occur through various forms, including:
o Selling, exchanging, transferring, or distributing the asset.
o Cancelling, redeeming, relinquishing, destroying, losing, or surrendering the asset.
2. Transmission by Succession: In cases of inheritance, the transmission of an asset via succession or will is treated as the disposal of the asset by the deceased individual at the time the asset is transferred to the beneficiary.
3. Business to Personal Use: If a business asset is converted for personal use, it is treated as having been disposed of at the time of conversion by the owner. Furthermore, if a business asset is discarded or ceases to be used in business, it is also considered disposed of.
4. Partial Disposal: The law also recognizes the disposal of a part of an asset, ensuring that partial transactions are adequately covered under tax regulations.
Key Provisions on Acquisition of Assets:
1. Ownership Acquisition: A person is deemed to have acquired an asset at the moment they begin to own it. This includes situations where the person is granted any right over the asset.
2. Personal to Business Use: If a personal asset is repurposed for business use, the law treats it as an acquisition of the asset by the owner for business purposes at the time of application.
Definitions:
• Business Asset: Defined as an asset used wholly or partly in the course of a business, which includes stock-in-trade and depreciable assets.
• Personal Asset: Defined as an asset held entirely for personal use without any business application.
The FBR’s updated provisions provide much-needed clarity for taxpayers engaged in transactions involving assets. By outlining how disposals and acquisitions are treated under the Income Tax Ordinance, the FBR ensures that all relevant parties can accurately account for their assets in compliance with tax laws.
These measures are particularly significant for businesses and individuals in Pakistan, as they help streamline the process of reporting asset changes, ensuring proper tax obligations are met.
